ASEAN plastic industry has “rediscovered its strengths”

Ahead of K 2016 in October, experts at Messe Dusseldorf share insight on the potential, opportunities and trends across a number of international markets, starting with Southeast Asia.

The plastics industry in ASEAN (Association of Southeast Asian Nations) remains seemingly unperturbed by global developments that are impacting the growth path of key industries.

Countries within ASEAN have been allowed to rediscover their strengths to sustain growth as a result of economic growth and trends in oil prices, variable supply and demand and the weakening of most Asian currencies.

The sector’s production rates have witnessed a steady average growth over the recent years, especially in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, which account for more than 95 % of regional GDP, according to McKinsey & Company.

ASEAN’s consumer base with a combined population of over 600 million and a combined GDP of US$ 2.6 trillion (£1.8 trillion) enables the region to get the right opportunities, hinging on the region’s rising middle class sector.

One of ASEAN’s top export sectors by value is plastics and plastic products earning US$ 39.3 billion in export revenues in 2013.

In Indonesia, the government has increased efforts to industrialise and develop the nation towards becoming the world’s seventh largest economy by 2030 as its rising middle class, to double to 141 million within the next five years, will drive plastics consumption. Indonesia also imports more than 40 % of its plastics requirements from Malaysia, Thailand, Singapore, Europe, and the US.

Food packaging accounts for 70% of plastic consumption sales, according to the Indonesian Packaging Association. The Aromatic, Olefin and Plastic Industry Association (Inaplas) has set a 6 % growth in domestic demand for the plastics sector, sustained by an improving GDP of 5.3 % in 2016.

Vietnam’s plastics industry had an average annual growth of 16-18 % between 2010 and 2015. Packaging accounts for 37.4 %, followed by consumer goods (27 %), construction (18 %) and technical products (15 %)

Vietnam relies heavily on imported raw materials, like polypropylene (PP) and polyethylene (PE) resins, importing an average of 4 million tonnes of raw materials while domestic production totals 1 million tonnes.

The industry is still at the “low end and of low value”, according to Vietnam Plastics Association (VPA), with a majority of exports being plastic bags to Japan.

Malaysia has over 1,500 plastic production companies that account for 45 % of the total plastic consumption market but plastic production costs have increased by 10 % over the course of 2015 due to a rise in Malaysia’s minimum wage to US$ 214 (£149) per month.

Thailand’s plastic consumption is led by packaging (48 %), electronics (15 %), construction (14 %), and automotive (8 %). The country has also invested US$ 60 million (£42 million) into bioplastics development over the past seven years, with the government putting in 80 % of this investment.

In the Philippines, export performance is down by 5.8 % because of low demand from its top buyers: the US, China and Japan. Various measures are being instituted to boost exports, such as the Generalised Scheme of Preferences (GSP) of the European Union (EU) that is offering export opportunities by allowing less or no duties on exports to the EU.

Global chemicals hub, Singapore, attracts $35 billion (£24 billion) and is expected to grow from offering connectivity through shipping routes, a developed infrastructure, manpower capabilities and ease of doing business.

Initiatives are being laid out by plastics trade associations, including the ASEAN Federation of Plastics Industries (AFPI), the Malaysian Plastics Manufacturers Association (MPMA), the Thai Plastic industries Association (TPIA), and the Philippines Plastics Industry Association (PPIA), to further develop the region’s plastic industry.  

The associations are working together with international-scale trade agreement blocs, including the ASEAN Economic Community (AEC), the US-led Trans Pacific Partnership Agreement (TPPA), and the China-backed Regional Comprehensive Economic Partnership (RCEP).

The AEC features liberalisation of goods, investments and services and will enable plastic producing countries like Thailand, Malaysia and Singapore to lower duties on finished plastic products, machines and moulds to other member countries. The US-led 12-nation TPPA will liberalise trade regulations between the member countries and also eliminate tariffs as high as 25 %. The RCEP aims to consolidate the existing ASEAN FTAs and will impose a 65 % tariff cut, with the percentage likely to increase to 80 % within a decade.

With these developments taking place, the ASEAN plastics industry will witness an expansion as its growing consumer bases, broadening of plastic import and export markets, and expanding foreign trading powers offers foreign investors significant opportunities.